Increased general government grants during the pandemic fell wide of the mark

It was feared that the COVID-19 pandemic would lead to a deep recession. To stabilise the economy, general government grants for municipalities and regions were therefore increased by SEK 36 billion during 2020–2022. The aim was to counteract cutbacks in municipal activities and tax increases that could exacerbate the recession.

The Swedish National Audit Office has examined whether the Government designed these increases effectively. The audit shows that the increases during all pandemic years significantly exceeded the losses of tax revenue they were intended to offset. The money appears to have been largely used to enhance the financial performance of municipalities and regions.

The decision-making material accessed by the Swedish National Audit Office suggests that the Government was aware that the size of the increases entailed overcompensation for municipalities and regions.

“Unjustifiably large cyclical support can lead municipalities and regions to increase their expenditure in the long term, for example by failing to improve effectiveness, and to a need to hike tax rates further down the line,” says Dan Solverud, project leader for the audit.

These problems are partly due to the fact that the Government does not appear to have taken sufficient account of how the increases have interacted with other measures – in the labour market, for example – or the sharp increases in targeted government grants during the pandemic years. Nor did the Government take into account the substantial differences in the impact of the pandemic between municipalities and regions.

For support to be effective, recipients need to be able to use it into their operations. For municipalities, this was impeded by diminished demand for social welfare services during certain stages of the pandemic. For regions, it was impeded by the sector’s conversion to pandemic-related operations, which were largely financed through targeted grants.

All in all, this probably contributed to cyclical support not being implemented in the operations to any notable extent, and to its stabilisation effect thus being weak.

The Swedish National Audit Office also notes that the Government’s documentation and reporting to the Riksdag was not sufficiently transparent. It is not clear what effects the increases in general government grants were expected to have, or why – contrary to the Government’s own documentation – they were so large.

The audit also shows that the Government’s communication on the increases was unclear.

“In a similar crisis, the Government should examine other alternatives on how the central government could support municipalities and regions. This also needs to be done in a way that supports efficient use of resources at regional and local level without undermining budgetary discipline,” says Auditor General Christina Gellerbrant Hagberg.